2. National Income Accounting YLPSS ADAM PHILIP Revision On National Income Accounting

3. National Income Accounting YLPSS ADAM PHILIP Gross Domestic Product (GDP) Gross Domestic Product is defined as the total market value of all final goods and services produced within the boundary of a country over a given period of time. Market value : Measured in terms of dollars. Final goods : Intermediate goods, semi- produced goods are all excluded to avoid double counting. Only goods produced within the boundary of a country is included, regardless of the citizenry of the people who make the goods. GDP is a flow, it is measured periodically.

4. National Income Accounting YLPSS ADAM PHILIP Gross National Product (GNP) Gross National Product is defined as the total market value of all final goods and services produced by the citizens of its country over a given period of time. Market value : Measured in terms of dollars. Final goods : Intermediate goods, semi- produced goods are all excluded to avoid double counting. Only goods produced by the residents of the country will be included. GDP is a flow, it is measured periodically. ID

5. National Income Accounting YLPSS ADAM PHILIP How to measure GDP ? By Expenditure Approach Expenditure Approach Income Approach Output Approach

6. National Income Accounting YLPSS ADAM PHILIP Measurement Method I : Expenditure Approach By this approach, GDP = C + I + G - Tr + X + RE -M (1) C : Private Household Consumption (2) I : Domestic captial formation II Domestic Fixed Capital Formation Domestic Fixed Capital Formation Change In Stock

7. National Income Accounting YLPSS ADAM PHILIP D.F.C.F. : Gross Investment Expenditure It refers to : (1) Land (2) Building (3) Factory, machinery and equipment

8. National Income Accounting YLPSS ADAM PHILIP Change in stock : Inventory Expenditure +ve : stocks -ve : stocks X: Export Final goods bought by foreign countries Re-export Goods exported through H.K. M : Import Goods produced by foreigners.

9. National Income Accounting YLPSS ADAM PHILIP G -Tr : Government expenditure minus transfer payment Transfer payments are excluded as no productive activities are involved. G -Tr : Government expenditure minus transfer payment Transfer payments are excluded as no productive activities are involved. In sum : + C I G - Tr X + Re - M GDP (at market price)

10. National Income Accounting YLPSS GDP and GNP In China, Chinese produce 2 recorders Taiwaness produce 2 books. GDP = 2 recorders + 2 books If, 1 recorder = $10, 1 book = $5 Then the GDP of China = $22

11. National Income Accounting YLPSS To know GNP of China, we need to know the production activities of citizens of Chinese in other countries. Suppose, In Taiwan, Chinese produce 1 recorder and Taiwaness produce 1 book.

12. National Income Accounting YLPSS Incoming Income {$10} Outgoing Income {$2} GNP of China = GDP + Incoming income - Outgoing income = $22 + $10 - $2 = $30

13. National Income Accounting YLPSS GNP = GDP + Incoming Income - Outgoing Income Net Income From Abroad = Incoming Income - Outgoing Income GNP = GDP + Incoming Income - Outgoing Income Net Income From Abroad = Incoming Income - Outgoing Income Hence, GNP = GDP + Net Income From Abroad GDP = GNP - Net Income From Abroad Hence, GNP = GDP + Net Income From Abroad GDP = GNP - Net Income From Abroad

14. National Income Accounting YLPSS GDP and NDP GDP - Depreciation = NDP GDP and NDP GDP - Depreciation = NDP Jan.97, USA has 2 spaceships Feb., 1 spaceship is destroyed Nov., USA produce 2 spaceships. There are ____ Spaceships at the end of 97

15. National Income Accounting YLPSS (1) stocks(2) Depreciation (3) Gross investment The net increase of stock : Gross investment - Depreciation 2 spaceships - 1 spaceship = 1 The Net investment is 1

16. National Income Accounting YLPSS Similarly To find the net growth of the economy, we can use NDP = GDP - Depreciation NDP is : Net Domestic Product, Used to measure the net increase in domestic product after adjustments have been made for the tear and wear of domestic products.

17. National Income Accounting YLPSS Similarly To find the net growth of the economy, we can also use NNP = GNP - Depreciation NNP is : Net National Product, Used to measure the net increase in national product after adjustments have been made for the tear and wear of national products.

18. National Income Accounting YLPSS C I G - Tr X + Re - M GDP (at market price) N.I.F.A. GNP (at market price) depreciation NNP (mp) + + - In sum,

19. National Income Accounting YLPSS GDP (mp) and GDP (fc) Government Indirect Business Tax Market prices of goods Subsidies Market prices of goods

20. National Income Accounting YLPSS Indirect Business Taxes (IBT) - Taxes imposed on goods and services - Included in the market prices of the taxed goods Government IBT ($500) Factor Income ($1000) Market Price ($1500)

21. National Income Accounting YLPSS IBT makes income less than value of the good To find the flow of income to the resident, need to subtract IBT

22. National Income Accounting YLPSS Subsidies - Imposed on goods / services - Not included in the market prices of goods / services Government Subsidies($500) Fares $500 Cost of ticket $1000

23. National Income Accounting YLPSS Subsidies make the market price of the goods lower. To find the flow of income to the residents, we need to add subsidies. GNP (FC) = GNP (MP) - IBT + SUB GNP (MP) = GNP (FC) + IBT - SUB

24. National Income Accounting YLPSS C I G - Tr X + Re - M GDP (at market price) N.I.F.A. GNP (at market price) depreciation NNP (mp) IBT SUB NNP(FC) or NI + + - - + In sum,

25. National Income Accounting YLPSS Measurement Method II : Output Approach Natural resources Factors of production Semi-finished goods GDP at factor cost Final goods and services at factor cost + IBT - SUB GDP at market price Final goods and services at market price + Net income from abroad GNP at market price

26. National Income Accounting YLPSS Value-added Method Lumbering firm Manufacturing Refining Retailer A $200 $350 $400 $500 Consumer $200 $350 - $200 = $150 $400 - $350 = $50 $500- $400 = $100 Sum of VA=$500

27. National Income Accounting YLPSS The END

28. National Income Accounting YLPSS PRODUCED BY: (GROUP 5) LAU PO HAN (97057570) LIN MIU HA (97098410) YUNG MAN KIT (97097260)